Everyone is talking about it...on Monday The Sun said 'Axe the Tax' and on Tuesday The Scotsman wrote that 'Inheritance Taxes are the Final Insult'

The Today Programme talked extensively about abolishing death duties and it made headline discussion this week on BBC 2 Working Lunch…

Peter Clarke of the Scotsman writes a feature on the latest book to be published by the IEA, ‘Euthanasia for Death Duties’, by Barry Bracewell-Milnes.

Inheritance taxes are the final insult

Peter Clarke

MY mother-in law lives with impressive frugality on a modest pension. On her expiry, Gordon Brown will take 40 per cent of her estate. She is not a wealthy person. In terms of income, she is demonstrably a low earner.

Her problem is that her house, bought in the 1950s, represents a capital sum rather more than she can comprehend.

She knows she is far from rich and cannot believe much of her assets will fall to the Treasury.

I offer this mini-example as evidence of a wider truth I provisionally call Clarke’s Law: “That all politicians achieve the opposite of their declared intention.”

Those MPs who promoted inheritance tax, or death duty as it is often called, plainly wanted to harvest the resources of the truly wealthy. It is difficult to complain too loudly about those with several millions forfeiting sums to the Crown after they have made provisions for their family and favourite charities.

Yet what does inheritance tax actually do? It penalises those of humble means whose assets are mostly dormant and uncomprehended. The wealthy evade or avoid it. It is the frugal who get savaged. If you are truly affluent, you are counselled by lawyers and accountants and bankers and, oddly, even by the Inland Revenue.

What prompted me to be thinking about this is a clever piece of research by Barry Bracewell-Milnes called, wittily, Euthanasia for Death Duties published by the Institute of Economic Affairs.

The arguments are subtle and clever. If you are ever stuck for a birthday gift for the lawyer or accountant in your life, this is a good suggestion.

It is startling to discover the claim the Inland Revenue would probably harvest more money if it dropped inheritance tax altogether.

It is highly expensive to operate and the real money always takes evasive action. If the tax were abolished , money would not flee and would probably often get spent in a manner where tax would be collected.

Mr Bracewell-Milnes suggests an idea that is new to me. He calls it “perpetual saving” – the capital that is not blown in expenditure but which fructifies for others specifically because it is not spent on consumption.

We still need to be reminded that saving is a great social virtue. Authority defers to this idea but our tax system is still out to punish so-called “unearned” income.

Perpetual savings – the abstinence from consumption – is behaviour the state ought to applaud instead of punishing. I think there is great wisdom in this idea.

Mr Bracewell-Milnes must expand further on a notion that I suspect was a commonplace amongst Victorians but now sounds eccentric to we modern, consumption-focused folk.

The inheritance tax threshold – £242,000 – was devised when that represented more wealth than most could dream of. Now a good third of Edinburgh’s homes exceed that value. Add in shares and insurance policies and many people going to their graves in Scotland will fall within the 40 per cent tax take.

How peculiar that a tax designed to hit the rich is actually capturing the middle-income retirees. The effect of inheritance tax is more obvious in the arc of London and the Home Counties where owning even a very ordinary house takes you into the penalty zone.

Is Mr Bracewell-Milnes’ idea of scrapping the tax altogether a reasonable idea?

New Labour seems willing to adopt policies that Old Labour would never dream of executing. The Conservatives could probably not remove it as it would enforce their caricature of being the rich man’s party even if they are busy enhancing their blue collar credentials. It will probably take another generation to arise.

Some student reading at Edinburgh University library now may be Chancellor in 25 years’ time. If he has read this persuasive text, his (or her) imagination may be fired by the startling discovery that a tax devised for toffs is wounding those at the other end of the wealth spectrum.

As usual the sagacious Adam Smith has been here before. “All taxes upon the transference of property of every kind, so far as they diminish the capital value of that property, tend to diminish the funds destined for productive labour,” he once said.

Quite – and remember Smith was an exciseman at Leith.

In amongst several ingenious arguments about what may force politicians to abandon this iniquitous tax is the surprising assertion the promotion of gay rights may force a change. Gay partners ought to be treated equally in law but at the moment gay households are punished with extra severity – once again no part of the legislation’s original intention.

The gay community is a formidably effective lobbying force. I suspect that once inheritance tax gets perceived as a levy biased heavily against gay households transmitting their property towards those they love, the force for abolition will be unstoppable.

I’ll give Barry Bracewell-Milnes the last word: “Inheritance tax does immense economic damage and is perverse and counter-productive for its own ostensible purposes, egalitarian or otherwise.”